Microsoft dashes Yahoo!'s hopes of higher bid

Microsoft has given Yahoo! no hope of a higher takeover price, and said it is ready to go hostile or even call off its bid if Yahoo! maintains "unrealistic expectations" of a better deal.

Microsoft chief financial officer Chris Liddell said on a conference call yesterday: "Speed is of the essence for the deal to make sense." If no deal is reached by this weekend, Microsoft will reconsider its offer and reveal new plans next week, he said.

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Liddell said: "Unfortunately, the transaction has been anything but speedy, and has been characterised by what would appear to be unrealistic expectations of value."

Microsoft sees Yahoo! as a way to compete with arch-rival Google in the internet search and advertising arena but company executives have repeatedly said they have limits to what they are willing to pay to get a deal done.

Liddell said: "We have yet to see tangible evidence that our bid substantially undervalues [Yahoo!]. In fact, we see the opposite."

Liddell reiterated a threat Microsoft made three weeks ago to Yahoo!'s board of directors: that Microsoft would consider cutting its bid, now worth about $44bn, and take its case to Yahoo! shareholders if a deal is not reached by this Saturday.

Liddell said: "As outlined in our recent letter to the Yahoo! board, unless we made progress with Yahoo! towards an agreement by this weekend, we will reconsider our alternatives."

He said: "These alternatives clearly include taking an offer to Yahoo! shareholders or to withdraw our proposal and focus on other opportunities," either from internally generated growth or growth through acquisitions.

He was echoing a public threat made by chief executive Steve Ballmer at a conference near Milan on Wednesday that Microsoft would withdraw its cash-and-stock offer, originally for $31 a share, if Yahoo! does not start negotiating.

Ballmer also said Yahoo!'s better-than-expected first-quarter results, reported on Tuesday, had not changed Microsoft's view of its value.

The tough talk appeared to be a final public attempt to bring Yahoo! to the negotiating table before the nearly three-week-old deadline expires. Yahoo! has said it is open to considering a deal with Microsoft, among other alternatives, but only if Microsoft boosts its offer.

William Blair analyst, Troy Mastin, said: "A proxy battle seems increasingly likely. It sounds [like] Yahoo!'s got a price in mind somewhere north of $35 and Microsoft has a price in mind somewhere south of $35."

Earlier on Thursday, Microsoft reported weak Windows sales for its fiscal third quarter ended in March and gave a forecast for the fourth quarter ending in June at the low end of Wall Street expectations, sending its shares down nearly five per cent.

In regular-session trading on Nasdaq ahead of the results, Microsoft shares closed up 1.1 per cent at $31.80 while Yahoo! fell 2.8 per cent to close at $27.30. After the report, Microsoft stock fell 5.1 per cent to $30.18 while Yahoo! dipped a further one per cent to $27.01.

In order to regain the bid's full $31-a-share value, Microsoft's stock would have to rise to $32.6, the closing share price on 29 January, a day before Microsoft presented its unsolicited offer to Yahoo!'s board.